Geithner Pushes to Restrict, Not Ban Derivatives

Posted on Apr 16, 2010

In a letter to a ranking Senate Democrat, Treasury Secretary Timothy Geithner called for restrictions on derivatives—those financial instruments whose value is derived from other instruments—but stopped at an outright ban on the trading practices that helped lead to the current financial crisis.

Geithner said that derivatives were “at the very center of the financial crisis,” though he did not endorse a proposal by Democrats to ban the derivative business entirely.

Treasury Secretary Timothy Geithner said Thursday in a letter that tight restrictions on derivatives is “at the core” of a sweeping overhaul of financial rules but didn’t call for the outright ban on trading by banks that some Democrats are pushing.

Mr. Geithner, in a letter to Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.), said new financial rules must create restrictions on how over-the-counter derivatives are traded “in order to curb abuses that were at the very center of the financial crisis.” But he notably stopped short of endorsing a proposal from Ms. Lincoln to force large banks to spin off derivatives trading businesses entirely.

His letter is the latest in a forceful push by the Obama administration to counter a lobbying effort by financial companies to scale back the derivatives rules.